VAT Treatment of Staff Canteens
Revenue Article
The December 2005 issue of Tax Briefing (Issue 62) contained an article, which set out the revised VAT treatment of staff canteens following the European Court of Justice decision in the “Hotel Scandic case”. This follow-up article now advises of the formal withdrawal of the concessional basis of accounting for VAT on staff canteens from 1 May 2006 and clarifies the treatment of repayment claims for back years.
1. Introduction
In practice, Revenue has in the past accepted either of two methods of accounting for VAT on staff canteens:
- The Statutory Basis: The employer accounted for VAT on the total cost of providing the service including all the costs suffered in providing the service, or on the takings from the canteen, whichever was the greater.
- The Concessional Basis: As set out in Tax Briefing 29 of December 1997, this basis could be used where a canteen was operated by an outside caterer on behalf of an employer who made no contribution, apart from a subsidy paid directly to the caterer, towards the operation of the canteen. Where this basis was used, the outside caterer was obliged to account for VAT on both the cash received from the employees and the subsidy from the employer. The employer was not obliged to account for VAT (as s/he would have under the statutory basis) and was not entitled to take a deduction in respect of any VAT charged to her/him in connection with the canteen.
2. Withdrawal of Concessional Basis
The right to use the Concessional Basis is withdrawn with effect from 1 May 2006. Thus, where an employer provides the canteen service to his/her staff for consideration, including where an outside caterer operates the canteen as agent of the employer, the employer must account for VAT on his/her actual receipts from the canteen under his/her own VAT registration number. In so accounting for VAT, the employer will be entitled to full input credit in respect of VAT borne on the cost to him/her of providing the canteen service.
3. Treatment of repayment claims – general
Repayment claims will arise where either the Statutory Basis or the Concessional Basis was operated correctly by the employer / outside caterer. As already indicated, where the Statutory Basis was used, the employer should have accounted for VAT on the total cost of providing the service or on the takings, whichever was the greater. Where the Concessional Basis was availed of, the outside caterer should have accounted for VAT on the cash received from the employees (on behalf of the employer) and on any VAT charged to the employer for the catering services provided. In this situation the employer was not obliged to account for VAT as s/he would have under the statutory basis and would not have been entitled to take a deduction in respect of any VAT charged to him/her in connection with the canteen.
Where the employer accounted for VAT on the Statutory Basis, repayment claims should be supported by:
- evidence of the amount of VAT paid on the canteen for each claim period.
- a computation of the amount of VAT that would have been payable on the canteen receipts for each claim period.
- a computation of the amount of VAT repayable for each claim period.
- a computation of any income tax or corporation tax adjustments resulting from the VAT repayments
Where the employer availed of the Concessional Basis, repayment claims should be supported by:
- a copy of the contract between the employer and the outside caterer, which should confirm that the caterer received the receipts from the staff in his/her capacity as agent of the employer.
- confirmation from the outside caterer that s/he has accounted for VAT on the receipts from the staff (on behalf of the employer).
- a computation of the amount of VAT repayable for each claim period.
- a computation of any income tax or corporation tax adjustments resulting from the VAT repayments.
It has been suggested by some practitioners that a request to an employer to obtain confirmation from the outside caterer that s/he has, on behalf of the employer, accounted for VAT on the receipts from the staff is unreasonable on the grounds that there are two separate taxpayers involved and that it is not appropriate for one taxpayer to be required to confirm the compliance position of another taxpayer in this way. Such suggestions ignore the fact that under the Concessional Basis the caterer, as an agent of the employer, is accounting for VAT properly due by the employer. Thus, it is entirely reasonable, in dealing with repayment claims from an employer who has availed of the Concessional Basis, that the employer be required to produce confirmation from the caterer that s/he has actually accounted for VAT on the receipts from the employer's staff. This is particularly important given the fact that, in the context of the examination of some claims by employers who purported to be availing of the Concessional Basis, some Revenue Districts have discovered that the outside caterer had not in fact accounted for VAT on canteen receipits from employees.
Repayment claims are restricted to claims received within the relevant statutory time limits and, in accordance with section 21A of the Value-Added Tax Act, 1972, interest is payable on amounts due to be repaid.
4. Treatment of repayment claims where VAT was not previously accounted for on receipts from employees
As mentioned in paragraph 3 above, Revenue Districts have received claims from employers who have contended that they have accounted for VAT on the Concessional Basis, where it has subsequently been established that neither the caterer nor the employer have accounted for VAT on the receipts from the employees. In line with the decision in the “Hotel Scandic case”, input credits for VAT suffered by the employer on the operation of the canteen are nonetheless allowable in such cases. Thus, the employers in such cases may make repayment claims.
However, in making the repayment claims, the employers concerned must now account for VAT on the canteen receipts at the appropriate rates. Moreover, given that VAT was not originally accounted for on the receipts from the employees, interest will not be payable, under subsection (2) (mistaken assumption) of section 21 of the Value-Added Tax Act 1972, on the amounts to be repaid under such claims.
Interest on the amouts to be repaid under such claims may be payable under subsection (3) of section 21 of the Value-Added Tax Act 1972. Interest under this subsection accrues only from the expiry of the period of six months from the day Revenue receives a valid claim for the refundable amount. A valid claim is a claim which includes all the information required by Revenue to establish the refundable amount.
Claims received from employers in these circumstances should be supported by:
- a copy of the contract between the employer and the outside caterer.
- a computation of the total amount of input credit being claimed for each claim period.
- a computation of the amount of VAT due on the canteen receipts from employees at the appropriate rates for each claim period.
- a computation of the amount of VAT repayable for each claim period.
- a computation of any income tax or corporation tax adjustments resulting from the VAT repayments.